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A merger between Facebook and Craigslist may seem like a pipe dream — but in India it’s already happening. The web community Sulekha has quickly grown to become India’s largest user-generated content site with 6 million users, a number set to double this year. Social networking features and classified ads take up equally big parts of the site.

The site targets Indians worldwide. India holds 60 percent of the users. Another 30 percent live in North America, which is gathering pace in many cities (more on that later). Almost every person online in India is fluent in English, so Sulekha knew from the start that competition from other social networks would be tough. There is no pure social network based in India that competes favorably with American social networks Myspace, Facebook or LinkedIn.

But Sulekha decided to expand beyond personal social networking. The network part of the site is divided in vertical sections like travel, news, sport and food. The idea is to provide useful content to anyone with interest in Indian culture and news. The Indian Premium League in cricket, IPL, attracts particularly strong interest with hundreds of people writing comments about it under a special “cricket caption”. Satya Prabhakar, CEO of Sulekha, says that the aggregation of social network content in vertical sub-sections makes it easier to attract advertisers who want to know their audience’s interests. General purpose social networks like Facebook and Myspace are all struggling to find a sustainable advertisement solution.

Sulekha will not disclose its revenue but says it’s growing by 75 percent this year, making the company profitable at the operational level. Half of the revenue comes from advertising on the social network part of the site. The other half comes from classified ads, where currently about 20,000 small businesses have paid for search words. In the U.S. a majority of such small businesses have their own websites and many would use Google’s Adwords advertising tool. In India, online advertising is a brand new world.

The major share of Sulekha’s 450 staff work in sales and visit the Indian companies to give them their first introduction to online advertising. It has apparently paid off, since Sulekha now claims to be the largest online classified site in India’s eight biggest cities — Mumbai, Kolkata, New Delhi, Chennai, Bangalore, Hyderabad, Ahmadabad and Pune. About three quarters of visitors use the classified ads section of the site.
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Sulekha.com, one of India’s bigger social networking sites, has raised $10 million from a leading Silicon Valley venture firm, Norwest Venture Partners.

Sulekha provides Indians with 1) a networking component, meaning blogs and groups, and 2) an online marketplace for things like movies, events, travel and news in each of 25 cities. These cities are in India and in other cities with large Indian populations. These local sites also have small business listings — effectively local yellow pages directories, which most Indian cities don’t have yet.

It was founded in 2001, became profitable by 2003, but then took $4 million in a first round from individuals and has expanded aggressively at a minor loss since then, according to chief executive Satya Prabhakar. It is making millions of dollars a year in revenues, he said, but would not elaborate. The revenue is a mix of advertising and marketplace transactions, he said. He said there up to three million small businesses in India, with few places to list themselves or advertise.

We checked out the site, and noticed how different the visual experience is from U.S. sites. We got a somewhat annoying — in our opinion at least — repetitive audio-video ad (click on image here), though it went away after we started clicking some of the regional sites.

Norwest’s investor, Promod Haque, said he liked Sulekha because there is no other company with its breadth, only individual companies trying to bite off niche pieces of its offerings.